What is cryptocurrency anyway?
You can think of crypto like tokens at an arcade. For most people, the first step to obtaining these tokens is to exchange their dollars.
Unlike arcade tokens, cryptocurrency is digital. While they can be used as a medium of exchange, most crypto is seen as an investment product—something that can be purchased now with the hope that it will increase in value (like a digital version of gold).
What should you know about cryptocurrency?
Cryptocurrency has no intrinsic value.
If most people own it as an investment, how does it increase in value?
For starters, crypto has no intrinsic value. Its value is determined by what people are willing to pay for it. Some might argue that stocks are the same way. However, stocks pay dividends and have earnings. A stock’s price (while also determined by what other people are willing to pay for it) are a function of its future earnings and dividends—something crypto doesn’t have.
It should be considered a speculative investment.
Crypto has no intrinsic value. This means you bear a high risk of loss. As a result, any investment should be considered very carefully.
The technology behind crypto can be game changing.
Crypto is made possible by the blockchain, a new type of digital ledger. With blockchain, transactions are stored and verified in a way that is transparent and free of revision. Not only cryptocurrency transactions, but contracts between two parties can be stored on the blockchain.
Confusing? Yes. But this has major implications for the future of business and finance.
Security is a concern.
Since cryptocurrencies are digital tokens, you should do your homework on where to store it.
Some people like the convenience of buying and storing through an online exchange. However, an exchange is not immune to attacks from cybercriminals. Also, exchanges are not protected by FDIC insurance (like a bank) in the case that an exchange goes out of business.
Others prefer to hold their currency in a wallet. A wallet requires a lengthy private key to access. Lose your password and you lose your crypto.
We don’t know which cryptocurrencies will emerge as the “winner.”
This is one challenge to investing in early-stage technology. Think of all the failed tech companies that eventually gave way to today’s giants like Google, Amazon, and Apple.
Same thing with cryptocurrency. Who knows if Bitcoin will continue to dominate the market? What if Ethereum takes over? What if there is another coin that we aren’t even talking about?
What are reasons to invest in cryptocurrency?
So you want to invest in crypto. Besides the obvious reason—making a profit—what are other reasons someone invests in crypto?
- Diversification: it’s no secret that crypto prices are volatile. Having an investment that acts differently than the rest of your portfolio is attractive to some.
- FOMO: owning crypto can help control FOMO, the fear of missing out. If you want to hedge your emotions against ever-increasing crypto prices, having some ownership can help. Or else you will always be thinking, “I should have purchased it earlier.”
- Invest in blockchain technology: it’s hard to invest directly in blockchain technology. Owning crypto can be a way to indirectly invest in its potential.
Be careful about the desire to get rich
I don’t mind crypto. There’s too much uncertainty for me to recommend it to my clients, but that doesn’t mean I’m against it. I have learned to live in the middle.
What I hate about crypto is the “crypto culture.” You know the types—the people that put “Bitcoin” in their Twitter bio, talk about “fiat currency,” and are quick to tell others about how much money they made on their investment.
The crypto culture is dangerous.
The Bible has a clear warning against trying to get rich quickly (Proverbs 13:11). Crypto is often seen as this—a way to get wealthy without the work.
Elsewhere, Paul tells Timothy, “But those who desire to be rich fall into temptation, into a snare, into many senseless and harmful desires that plunge people into ruin and destruction.” (1 Timothy 6:9).
I think there is a real danger that no one is talking about. I’m not talking about the danger of crypto going to zero and losing all your money. The danger is a battle for your soul. The desire to be rich can plunge you into “ruin and destruction.” It’s not the fact that someone gains wealth—there are ways to gain wealth that honor God.
Before you make that crypto investment, ask yourself, “Am I making this investment out of a desire to get wealthy?” If so, be warned.